Gas Price Swings Signal Ukraine Supply Threat: Chart of the Day

Aug. 8 (Bloomberg) -- European natural gas traders are
preparing for increased market risk from fuel disruptions this
winter as Russia’s decision to shut off Ukrainian supplies has
already led a Kiev utility to cut hot water to its customers.

The CHART OF THE DAY shows 60-day historical volatility, a
measure of price swings, for U.K. next-day gas climbed to 46
percent yesterday, the highest since June last year, according
to broker data compiled by Bloomberg. Volatility is climbing as
gas pumped into storage in Ukraine, the transit country for
about half of Russian flows to Europe, declined for a second
week as of Aug. 1, Gas Infrastructure Europe data showed.

European and U.S. sanctions against Russia over its support
of separatist rebels in Ukraine may make it harder to resolve
the price dispute that led Russian gas exporter OAO Gazprom to
cut supplies to NAK Naftogaz Ukrainy in June. While gas flows to
Europe haven’t been affected yet, similar disputes between the
two former Soviet nations disrupted supplies in 2006 and 2009.

“The volatility is partly the result of the tightening
sanctions regime and threats by Russian officials that more
sanctions will put upward pressure on energy prices, but also
the result of the stalemate in the Gazprom-Naftogaz dispute,”
said Andrew Neff, an analyst at IHS Inc. in Moscow. “This will
not be resolved before heating season begins and storage
injections through the mid-June cutoff won’t be nearly enough to
get through the winter.”

The pace at which gas is pumped into Ukraine storage
facilities every week has fallen about 84 percent from levels
before June 16, when Gazprom cut supplies over an unpaid debt
and disagreement on the price of future deliveries. At the
current refill rate, the country’s storages will only be 51
percent full before the withdrawal season starts, according to
consultant Energy Aspects Ltd. in London.

Utility Kyivenergo cut hot water supplies to consumers in
Kiev following government orders to save gas for the winter, the
company said Aug. 4.